Stocks are higher as market participants return from the Thanksgiving holiday. Bonds and MBS are flat.

The highlight of this week will be the jobs report on Friday. This will be the last jobs report before the December FOMC meeting. The Fed Funds futures are pricing in a 75% chance of a tightening.

The European Central Bank meets this week, which should add even more noise to interest rates later this week.

Pending Home Sales rose 0.2% in October and are up 2.1% year-over-year. Tight inventory and rising prices are crimping sales. Pending Home Sales rose the most in the Northeast, where we haven’t been seeing the torrid price appreciation we have been seeing on the West Coast.

The ISM Milwaukee manufacturing index fell to 45.3 from 46.7 last month. The Chicago Purchasing Manager index fell from 56.2 to 48.7. Again, we are seeing the stronger dollar affect manufacturing. Inventory build is a problem, and was the driver of the upward revision in Q3 GDP. We could be setting ourselves up for a letdown in Q4.

Technical issues could keep a lid on long-term yields, which should be good for mortgage rates. Due to a shrinking budget deficit, funding needs for the government are falling, and regulatory requirements have increased demand for shorter-term Treasury bills instead of longer-term bonds. Treasury bond issuance is expected to fall 33% next year to $400 billion. Some analysts are forecasting a 50% drop. This means we could be looking at a scenario where short term rates increase and longer term rates go nowhere.

As home prices rise, affordability is declining. The median house price to median income ratio is around 4.6x, which is closing in on its bubble high of almost 5x, and well above its historical range of 3.2x – 3.6x. What is driving the increase in house prices? Restricted supply has been an issue, as housing starts have been anemic since the bust. Another issue has been foreign demand, especially from China. There are a couple of things going on here. First, Chinese demand is partially driven by a desire to have dollar denominated assets, and second US policy regarding immigration. If a Chinese investor funds a development which creates US jobs, they get a green card. Chinese money which levitated prices on the West Coast is now moving inland, funding McMansion communities outside suburbs of Dallas and Chicago. Since Chinese buyers are cash-rich, they don’t need a mortgage and are winning bidding wars by offering cash.

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Markets are lower this morning after Turkey shot down a Russian plane in Syria and Brussels stays on lockdown. Bonds and MBS are up small.

The second revision to third quarter GDP came in at 2.1%, in line with estimates, and up from the initial 1.5% estimate. Personal consumption rose 3.0%, a little below expectations, while inflation was slightly higher. Inventory build accounted for a lot of the growth, which means the third quarter may have “borrowed” some growth from Q4.

Consumer Confidence took a big hit in November, falling from 97.6 to 90.4,

The Richmond Fed Manufacturing Index fall to -3 from -1 in November.

The S&P/Case-Shiller index rose .61% in September and is up 5.45% year-over-year.

The Allergan / Pfizer merger has brought out all the usual suspects jawboning about “corporate patriotism.” It is another inversion trade, where the larger Pfizer is getting bought by smaller Allergan in order for Pfizer to change its domicile to Ireland and lower its effective tax rate from 25% to 17-18%. The companies sure made themselves a target by doing this in an election year, however the reality remains: the US has the highest corporate tax rate in the world, and we double-tax foreign income, which most countries do not. Until corporate tax reform happens, these sorts of things will continue.

6 cups sliced/chopped Granny Smith apples [about 2 1/4 lb]. I like the skin on for this pie – it’s more “rustic”.

2×9-inch pie pastry shells – I either make my own or buy really great shells at Central Market. When I make my own it is in no way unusual.

1. In a small bowl, combine Gran Marnier and currants. Cover and let stand until currants are plump, at least 1 hour. [Sometimes I cheat and do not soak this long. No biggie. The plumpness of currants is mainly a texture deal. Also, pre-warming the Gran Marnier quickens the plumping]

2. Chop/slice apples, skin on, using a mix of techniques for slices and chunks. If there will be a delay between prep and oven, put the 6 cups of apples in a big bowl and add a little OJ to keep them from browning. LATER YOU MUST THOROUGHLY DRAIN AND PAT DRY THE APPLES! My grandmother taught me the OJ instead of lemon juice trick about 56 years ago.

3. Sort cranberries and discard any that are bruised or decayed. Rinse and drain berries.

4. In a large bowl, mix sugar, tapioca flour, nutmeg, and salt. With a slotted spoon, lift currants from Gran Marnier ; reserve Gran Marnier. Add currants, cranberries, and chopped apples to fructose mixture and mix well. Taste and add more fructose if desired. Pour filling into unbaked pie pastry in pan. Cut hole pattern in top crust. Mix 1/2+1/2 with reserved Gran Marnier and cinnamon and brush liberally on pie crust. Carefully braid foil around pie’s edge to keep pie from from crisping-burning on crust edge that overlaps the pan during baking. [Later, pass off the tiny pieces of foil that some guest finds in the crust edge as “healthy mineral”. :-)]

5. Bake on the bottom rack of a 375° oven until juices bubble around edges and through top holes, 55 to 65 minutes. If pie browns too quickly – check after 30 minutes – cover loosely with foil.

6. Set pie, uncovered, on a rack until cool to touch, at least 1 hour.

Existing Home Sales fell to 5.36 million in October, according to the NAR. The median home price increased to 219,600. Inventories remain tight, with the number of homes for sale dropping to 2.14 million, which is about 4.8 month’s worth of inventory. 6 – 6.5 months is considered a balanced market. It doesn’t appear that TRID had much of an effect on home sales, at least so far.

The Chicago Fed National Activity Index increased to -.04 in October. This is the third negative reading in a row, and the 8th negative month this year. Note we will get the second revision to Q3 GDP this week.

The back-to-school shopping season was somewhat disappointing for retailers as consumers remain cautious. Retailers continue to be promotional (retail-speak for “cutting prices”) and WalMart will begin its Cyber Monday sales prices on Sunday night.

Part of the issue with consumption is that homeowners are not tapping their home equity, at least the way they did before. Home equity loans are about 25% of what they were in 2007. While mortgage lenders are being more conservative, auto loans are now the new credit bubble. When you can get an 8 year car loan for about the same prices as a 30 year fixed rate mortgage, you know this has the potential to end very badly.

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Markets are higher this morning after Mario Draghi said the ECB will do what it must to raise inflation as quickly as possible. Bonds and MBS are rallying.

Fed Heads Bullard and Dudley will be speaking on the economy today.

Weakness in Europe has pushed bond yields down overseas, and the relative value trade should start having an effect here. The German Bund has been incredibly volatile over the past year, trading in a range of 5 basis points to 106 basis points. It currently stands at 47 basis points and looks to be headed lower.

Americans are re-leveraging. Household debt reached $12 trillion in the third quarter according to the New York Fed. Mortgage debt, student loan debt and auto loans all increased. The delinquency rate for student loans is an astounding 11.6%.